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Franchising does work – in the right area

Written by Nigel Toplis on Friday, 05 November 2021. Posted in Insight

In this month’s instalment for EF, franchising guru Nigel Toplis discusses what to look for when searching for the perfect territory.

Franchising does work – in the right area

In this month’s instalment for EF, franchising guru Nigel Toplis discusses what to look for when searching for the perfect territory.

It is not fake news to say franchised businesses have a far greater chance of success than new independent start-ups. Research shows that while around 93% of franchisees are likely to still be trading after two years, some 80% of independent start-ups will have closed.

Frankly, it amazes me that politicians haven’t cottoned on to this fact. You’d have thought successive Governments would have endorsed the franchise model, and maybe even been a cheerleader for the industry, by making it part of their economic regeneration programme.

Yet, whatever the above statistics may tell you, it is vital never to take success for granted. Although franchising is a hugely successful industry, when it comes to investing your own money into a business, you must never be complacent.

You still need to do your homework. There is a long list of things to consider, such as franchisor history, level of training and support, the business model itself and the quantity and quality of marketing you will received from HQ.

And then there’s selection of territory

Territory is important in all types of franchises, be it business to business (B2B), education, retail or service.  It can often become the most emotive subject of them all, particularly between franchisor and franchisee but also, on occasions, between franchisees themselves.

If the territory is wrong, then the effect on the business can be huge. Therefore, selecting the right territory is crucial, with potential franchisees needing to identify a region with the right customers, right demographics and right size. And there are four key elements to consider when selecting your territory: Size, Exclusivity, Content and Value.

Size: The physical size of a territory is generally irrelevant. Some franchisees think the larger the territory the greater the opportunity and, therefore, the more lucrative it is for the business. 

I would argue that very large territories are a hindrance to growth. Franchisees involved in B2B can be pulled from one part of the territory to another, resulting in many wasted hours. This will reduce the length of time you get to spend in the presence of a customer.

Similarly, in a retail environment, you want your franchise to be as local and as personal as possible. And it’s almost impossible to achieve this if the territory covers a huge geography. Therefore size is not necessarily the key. The critical factor is to ensure your territory has the right mix, range and number of customers.

Whatever your product or service, the territory must have a measurable quantity of prospects to do business with. This could mean schools, shops, businesses, local authorities, charities or the general public. It all depends on the franchise sector you choose.

Exclusivity:

Some franchisors offer exclusive territories, while others don’t. And some may even put a managed business into a territory that is already occupied by a franchisee. Therefore, you need to know the rules before you sign up.

Generally, the term ‘exclusive’ means the franchisor will not put another franchisee into a territory already occupied by one of his or her existing business partners. However, that does not mean that another franchisee cannot do business in someone else’s territory.

By and large, a franchisee does not have the right to solicit in another franchisee’s agreed region. However, the customer does have the right to decide who they give their business too. For example, if a customer in Leicester wants to deal with a franchisee in Derby, they are perfectly at liberty to do so.

In some cases, the franchisor may already have a ‘family and friends’ policy where a franchisee can provide services for family and friends in another person’s territory. There are rules, and there are unwritten rules. But franchisees should always play by the spirit of the rules.

Content:

Be clear in your mind what you expect the territory to consist of. And explain this in your business plan, too. If you are in B2B, then you should expect a certain number of businesses to be part of the territory. 

If you are a home service business, then you will want to ensure that there’s an appropriate level of ‘chimney pots’ in your area, and that they belong to people with the right demographics. 

If you are in retail, then you will want to consider footfall. And if children’s education is all-important, then you will want to have the right number of schools and nurseries in your territory. Content is so much more important than actual size.

Value:

If you are buying a ‘virgin’ territory, the price will be fixed and so it’s easier to compare with other similar franchise opportunities. But if you are looking to buy an existing territory, from another franchisee, it’s no different to purchasing any other business. 

Its value should be based on performance and profitability. Size has little relevance when it’s a resale. And finally…The territory itself has no intrinsic value. Its value lies in the demographic make-up of the marketplace, its customers and other businesses, and its exclusivity to you.

About the Author

Nigel Toplis

Nigel Toplis

About Nigel Toplis: Is managing director of four franchise businesses: Recognition Express (badges, signs and promotional gifts); ComputerXplorers (provides ICT educational classes for three-to-13 year olds); Techclean (a leading provider of system hygiene services to businesses in the UK); and Kall Kwik (a licenced operation and premier business print and design company in the UK). Nigel is a past chairman of the BFA, has written three books on franchising and, in 2007, became a Fellow of Lancaster University.

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